Cos. Rush As U.K. Alters VAT Rules

Value-added tax reclamation companies and expense management firms are rushing to meet the United Kingdom's Dec. 30 deadline to file for VAT refunds before a change in longstanding U.K. regulations significantly alters reclamation procedures.

Starting next month, all hotel receipts filed for a U.K. VAT reclaim must bear the address of the traveler's company, not the traveler. Unfortunately, nearly all hotel companies book rooms using the addresses of their guests, not their employers—even if the company books the room. Hence, critics call the change an unreasonable burden that will significantly diminish the value of U.K. VAT refunds. Some also said the laws apply obstacles to foreign companies that don't apply to local firms, potentially violating European Union anti-discrimination statutes.

VAT-reclamation vendor Meridian is trying to reverse the new regulation. In a strongly worded alert to clients, Meridian declared it "a top priority" and said it is "devoting significant attention and resources to launch a challenge in accordance with U.K. and E.U. law."

Among Meridian's efforts are an overseas lobbying campaign, the recruitment of third-party VAT experts to submit opinions on its behalf and attempts to rouse similarly affected parties to the cause. Meanwhile, it will "be making direct contact with the major business hotel groups to advise what changes they could make to assist their foreign business guests." The International VAT Association is lending its voice to the effort.

The new regulations potentially mean more work for VAT-reclamation businesses. Because the new law takes effect Jan. 1, groups like Meridian are encouraging their clients to submit all U.K. hotel invoices beforehand to avoid confusion later.

"We are going out trying to get every possible U.K. invoice today, so we can submit it before the new rules come into effect," said Meridian president Les Baer.

Meridian also is taking steps to ensure clients and hotels don't get surprised when they try to file for next year's reclaim. "We're asking clients to educate travelers of the requirements and then deal directly with the preferred U.K. suppliers to make sure the systems are set up correctly," he said.

Some see the new VAT-reclamation regulations as an obstacle. Others see it as an opportunity to provide clients a greater range of services. John Powell, president of Corporate VAT Management, said "the U.K. is by and large the greatest opportunity for most U.S.-based corporations to reclaim VAT," which means his company will be busy helping clients navigate the new "more restrictive" landscape.

Powell also sees an opening for hotels. "Hotels now have an opportunity to partner with key corporate accounts to make sure those travelers are given the correct invoices," he said. "If they can help clients save 17.5 percent of the cost, they're providing a huge service."

Both Baer and Powell are eager not to let the new regulations overshadow the otherwise remarkable good fortune the VAT reclamation business has seen in recent years. "We definitely have seen an increase overall in business activity based on a general awareness that there is an opportunity to recover value-added taxes," said Baer.

VAT-reclaim executives and expense reporting specialists said, client interest in getting back value-added tax is higher than ever.

"We've seen a lot more interest in the slant that we take in looking at corporate expense data and automating the identification for VAT recovery," said Powell. "You still need an invoice and documents when you file for a refund, but if you can find more effective ways of gathering your papers, you can get a better return. We've seen that increase dramatically over the last few years."

"This is an area which some people have neglected, or sometimes companies weren't even aware they could get this refund," said David Hillman, a principal with Consulting Strategies LLC.

Hillman said that "automated expense reporting has become more widely accepted over recent years" and VAT reclaim is "a natural service associated with that. It certainly is another reason why the whole issue has possibly gotten more prominent in the last several years, because now you have a group of suppliers talking about it."

Expense management companies often bring clients to VAT reclamation firms, who partner to provide the full range of services. "We collaborate with each of these companies to create streamlined VAT-recovery service," said Ann Altepeter, vice president of business development at Gelco. "Each does VAT reclaim slightly differently, so we've had to collaborate with each of them to provide a seamless interface to our mutual clients."

One obstacle to expanding VAT reclaim is that many companies are unaware of the regulations and documents needed for different countries—confusion to which the new U.K. regulations likely will add. Not all countries require the same documents, and even which expenses qualify for VAT refunds differ from country to country. Insiders agree that even companies already using VAT reclamation firms need to become smarter about those differences to increase their refund percentage.